One of the best long-term indicators of business success is your ability to control and capitalize on problems—whether a piece of equipment breaks down, a large order arrives, or you’re well-positioned to ride a viral trend, a line of credit allows you to handle emergencies and seize opportunities quickly and without having to apply for a new loan.
But while having a line of credit is undeniably a strength for growing businesses, getting the most out of it requires you to manage it strategically. In this article, you’ll discover five easy ways to make the most of your business line of credit.
What you need to know
- A business line of credit is a fast and flexible source of funding that can boost your credit score, but only if managed wisely.
- You can automatically speed up applications and credit line increases by connecting your external checking account to your line of credit.
- Use your line of credit regularly, connect your bank data, and avoid negative banking events to maximize your line of credit’s impact on your business credit and operations.
1. Use your line of credit and always repay on time
Compared to other types of business loans, business credit lines are highly flexible. You can draw from your pool of funds on demand, or you can choose to not withdraw anything for extended periods—but inactivity can work against you. If you don’t use a credit line for longer periods, you’ll miss out on one of the easiest ways to build business credit: regularly making draws and repaying them.
Lenders prefer customers with a history of timely repayments, so even if you don’t need your line of credit, making small draws and repaying them can boost your credit score and improve your chances of getting a credit line increase.
2. Connect an external banking account
Connecting your business checking account to your line of credit application can help your lender make a faster decision. If you already have a line of credit, a banking connection gives your lender real-time access to your banking history without needing to perform a credit check. For your lender, this allows for ongoing review of your finances, which can lead to increases in your available credit. For you, a banking connection means your business information will remain updated with your lender.
3. Remain in good financial standing
Try your best to avoid negative banking notifications like non-sufficient funds (NSF) or overdrafts. To lenders, these “negative banking events” suggest that you mismanage your existing credit, which can impact the types of financing they approve you for.
On the other hand, a healthy bank account is usually a positive sign for a lender. Small and new businesses can demonstrate creditworthiness by maintaining a positive checking balance and avoiding negative bank events. Regularly review your personal FICO score and monthly statements, and inform your lender of any significant business or financial changes ahead of time.
4. Request a credit line increase
Your financing needs will grow alongside your business. After you’ve spent a few months repaying your line of credit on time, you can further improve your credit score and access additional funds by requesting a credit limit increase. (Tip: If you’ve provided a connection to your external checking account, your lender may approve the request automatically.)
Credit limit increases are important because if you continue using similar amounts of credit, your credit use ratio will be lower, which improves your business credit and can help you qualify for better rates on future loans.
5. Know when not to use your business line of credit
A line of credit may be a fast and flexible source of funding for your business, but misusing it can lead to unnecessary financial strain. If, for example, your business is losing revenue, you probably can’t afford to regularly repay a credit line, and a rethink of your strategy may be more beneficial for long-term success. Credit lines are best drawn on to cover small or incremental ongoing needs like seasonal sales or staffing, or inventory to cover sudden high-demand.
If your business is experiencing financial difficulty, reach out to your lender to discuss refinancing or consolidating any loans you have. You may qualify for different interest rates or repayment terms.
See how Bluevine gives small businesses access to the capital they need to grow.
